Boundaries of Airport Profit

by Kyle Lewis
Regional Manager
Government Affairs & Airport Advocacy / Great Lakes Aircraft Owners & Pilots Association
Published in Midwest Flyer Magazine (online) – December 2020/January 2021

Do you think an airport can make money (be profitable)? Is an airport allowed to make money? If an airport does make money, where does that money go? While the answers are more than a simple yes or no, let us investigate a little further on how an airport operates.

Airports are large tracts of land, usually flat open acreage with a lot of concrete and asphalt. The size of the runways may vary. Some airports are near large cities, some are literally in the middle of a cornfield. Large commercial service airports operate much like a city with ground transportation infrastructure, restaurants, hotels, shopping centers, police and fire departments. Some even have day spas, yoga classes, movie theatres…and the list goes on! Smaller general aviation airports are usually found with aviation-specific businesses, such as fixed base operations with fuel/ground services, charter, aircraft rental, flight schools, aircraft maintenance shops and repair stations, and avionics shops. As most pilots know, a great airport diner can also be found tucked away somewhere on a small field.

How do all these seemingly ancillary businesses contribute to the well-being of an airport?

If they are located on airport-controlled property, a lease is in place for the business to operate. Those leases are a revenue stream for the airport. At this point we can have multiple discussions about FAA guidance on leases, revenue diversion, through the fence operations, commercial minimum standards, airport construction and design, airport compliance policy, rates and charges studies, FAA grant obligations and how they relate to ALL of the above…but that would be a long and probably boring discussion! The important things to know fall into four categories:
• Fair and Reasonable Lease Terms
• Non-Discriminatory Leases
• On-Airport Revenue
• Compatible Land Use

Fair and Reasonable – Open to interpretation, but in essence, leases provided to an on-airport operator must be within reason for the type of operation and investment. If the operator is going to make a significant investment on the airport (hangar or similar infrastructure construction), then a justified long-term lease makes sense. The FAA does not approve leases, but will review a lease to make sure the terms coincide with the FAA grant obligations. Lease terms and rates are also influenced by location, airport configuration, number of operations, etc. It should be mentioned that airport sponsors (the jurisdiction that owns the airport) can require independent contracted services (flight instruction, maintenance, and others) to operate as a commercial through-the-fence agreement. The airport can charge fees and commission rates from the provider to operate on the airport.  A quick note – the airport sponsor is under NO federal obligation(s) to allow a through-the-fence agreement. This maintains fair opportunity for on-airport providers that are subject to a specific lease and associated fees.

Non-Discriminatory Leases – An airport that has been awarded Airport Improvement Funds (AIP) from the FAA, is subject to the already mentioned grant obligations. There are 39 such obligations and those are derived from Title 49, United States Code Subtitle VII. Grant obligation #22 speaks to the economic non-discrimination of aeronautical users. In short, an airport sponsor cannot pick and choose what type of aeronautical user/operator makes use of the airport. This obligation has several points including language toward the famed “fair and reasonable” terminology when discussing leases and commercial minimum standards. The obligation also allows any person, firm, or corporation the right to perform services, such as fueling and maintenance on its own aircraft with its own employees.

On-Airport Revenue – Again, another grant obligation requirement (#26), any revenue generated by the airport, or any local tax on aviation fuel (enacted after 1987), must be expended on the capital or operation of the airport, airport system, or facilities owned and operated by the airport.  In short, the airport sponsor cannot use the airport as a “cash bag” for the municipality, although some have tried. As a side note, many airports across the country lease out acreage for farming operations, which can garner good profit margins for an airport.   

Compatible Land Use – Grant obligation #21 is only a paragraph long, but it touches on a subject that can truly affect the utility of the airport. The FAA asks the local sponsor to enact zoning that will protect the normal operations of the airport. AOPA consults with airports and users on this subject often. The straightforward answer is having strong planning and/or zoning restrictions near airports. This zoning sometimes overlaps with individual state mandates on tall structure laws, including FAA Part 77 approach surfaces. When residential areas become congested next to an airport, the noise issues begin, and political pressure is sought to restrict airport operations, shorten runways, limit airport use, and can eventually spell the demise of an airport. Incompatible land use is one of the largest threats to airports.

If you get a chance to have a conversation with your airport manager, he will probably tell you that his job is more like that of a properties manager, with a wide variety of tenants requiring special consideration to conduct business. All while maintaining the guidance and policy the FAA has put forth.

Back to the original questions from the beginning – yes, an airport can make money! The FAA requires an airport to assess fees and rental structures that will make the airport as self-sustaining as possible.

I hope this very brief topical discussion sheds light on the boundaries of airport revenues. While there is much more detail in each bullet point, this information can help us understand why airport leases and minimum standards are written the way they are. It is for sure not a one-size-fits-all answer, and there is enough room for airport sponsors to become creative when looking for funding.

It is a privilege to serve you! (kyle.lewis@aopa.org)

This entry was posted in AOPA, AOPA Great Lakes Report, Columns, Columns, Columns, December 2020/January 2021 and tagged , , , , , , . Bookmark the permalink.

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